Date: 20081218
Docket: 08-A-52
Citation: 2008 FCA 409
Present: PELLETIER
J.A.
BETWEEN:
KEVIN McKINNEY
Applicant
and
HER MAJESTY THE QUEEN
Respondent
REASONS FOR ORDER
PELLETIER J.A.
[1]
This
is an application for reconsideration of an order dismissing an application for
an extension of time to file a Notice of Appeal from a judgment of the Tax
Court of Canada. The basis of the application for reconsideration is that "a
matter that should have been dealt with has been overlooked or accidentally
omitted": see Rule 397(1)(b). The allegation that a matter was overlooked
or accidentally omitted arises from paragraph 4 of the Court's reasons:
[4] While the
affidavit of Mr. Clarke indicates that a copy of the judgment under appeal is
attached as Exhibit B to his affidavit, Exhibit B is a copy of the
interlocutory order which is already under appeal. As a result, the Court has
no idea of the nature of the judgment under appeal and the grounds for the
appeal, and thus is unable to form any idea of the potential merit of the
appeal.
[2]
The
applicant notes that the judgment under appeal was attached as Exhibit A to the
affidavit of Mr. Clarke, and the Court's failure to take this into account is a
"matter which has been overlooked or accidentally omitted."
[3]
The
Reasons for Judgment do not say that the judgment under appeal is not attached;
they say it is not attached as Exhibit B.
[4]
What
is implicit in the Court's order is that the Reasons for Judgment with respect
to the judgment under appeal are not attached as an Exhibit to the Affidavit of
Mr. Clarke and thus, "the Court has no idea of the nature of the judgment
under appeal and the grounds for appeal, and thus is unable to form any idea of
the potential merit of the appeal."
[5]
It
is clear from paragraph 3 of the Court's reasons that it was aware of the judgment
under appeal as it refers to the specific terms of the judgment.
[6]
The
basis of the refusal to grant the application for an extension of time is found
in paragraph 8 of the Court's reasons:
The Court is
being asked to authorize the late filing of an appeal when it has no idea of
the nature or the merits of the proposed appeal. This omission is very
difficult to overcome, particularly when the taxpayer himself is undecided
whether to pursue his appeal.
[7]
The
applicant suggests that the Court "overlooked the Final Judgment (which
was attached as Exhibit A) and the grounds for appeal set out in paragraphs
22(b) and (c) of the Applicant's Written Representations (which the Motion to
Extend clearly indicates were to be relied upon).":see paragraph 25 of the
Applicant's Written Representations.
[8]
Paragraph
22 of the Applicant's original submissions does not refer to the proposed
grounds of appeal. It refers to the arguable case on appeal. Whether a case is
arguable depends, in part, on the grounds of appeal:
[22] There is an
arguable case on appeal because:
(a) The learned trial
judge dismissed the application to amend the pleadings without considering the
law relating to amendments of pleadings but rather he only considered the law
relating to adjournments.
(b) Furthermore,
although the learned trial judge ruled that Mr. McKinney "never did
anything to prevent the failure to remit…", Mr. McKinney tendered
considerable evidence, which, if properly considered would have led to the
appeal being allowed on the basis that Mr. McKinney had made out a "due
diligence" defense pursuant to ITA ss. 227.1(3).
(c)
Alternatively, the learned trial judge erred in ruling that only $43,503 of the
$72,015.25 received by the CRA from MKM Manufacturing Ltd.'s trustee in
bankruptcy should have been credited against the CRA's claim because those
funds were subject to a mortgage executed by MKM and were paid pursuant to its
terms because the CRA did not receive those funds as a result of enforcing the
mortgage but rather chose to petition MKM into bankruptcy. The $72,015.25 was
paid to the CRA in respect of its "property claim" filed under the Bankruptcy
and Insolvency Act (Canada) in respect of the unremitted payroll
deductions but not under the mortgage therefore the funds should have been
credited against the payroll deductions and not the mortgage debt. In short,
the mortgage was simply irrelevant to the bankruptcy proceedings.
[9]
The
normal practice when seeking leave for an extension of time to file an appeal
is to attach a copy of the proposed Notice of Appeal so that the Court knows
the proposed grounds of appeal. From this, the Court can decide whether the
proposed grounds are in fact "arguable". Of the three matters raised
in paragraph 22, only paragraph (c) may raise an arguable case.
[10]
Paragraph
(a) deals with the subject matter of the interlocutory appeal while paragraph
(b) seeks to set aside a conclusion of mixed fact and law, i.e. the failure to
make out the defence of due diligence, on the basis that the Court did not
properly evaluate the evidence. It is settled law that a court of appeal is not
to simply re-weigh the evidence before the trial judge in order to come to a
different conclusion.
[11]
In
order to assess whether paragraph (c) raises an arguable case, it is necessary
to know that:
(a) the
assessment against the applicant is in his capacity as a director of a
corporation with respect to payroll deductions made but not remitted by the corporation,
MKM Manufacturing Ltd. The trial judge found that the applicant was involved in
the day to day operations of the corporation.
(b) as
security for the amounts owing to Canada (as represented by the Canada Revenue
Agency) and British
Columbia
(as represented by the Worker's Compensation Board), MKM executed a general
security agreement with respect to its personal property in favour of CRA and
the WCB.
(c) as further security
for the amounts owing to the CRA and the WCB, MKM granted CRA a second mortgage
of its real property, which mortgage eventually became a first charge against
the property.
(d) as a result of the
closure of MKM, the mortgagees foreclosed and attempted to arrange a sale of
the property. When the proposed sale collapsed CRA petitioned MKM into
bankruptcy.
(e) the trustee in
bankruptcy eventually conveyed the real property to a third party in return for
approximately $100,000.00 of which $72,015.25, the balance after deduction of
the cost of the proceeding, was paid to the CRA for itself and the WCB. The sum
of $43,503.77, which the trial judge credited to the account of the applicant,
was the CRA's proportionate share of the proceeds, based on the relative size
of the claims of the CRA and the WCB.
[12]
The
arguable case proposed by counsel for the applicant is that the applicant should
be entitled to the full benefit of the $72,015.25 paid to the CRA because the
funds were not paid to the CRA pursuant to the mortgage arrangement between
MKM, the CRA and the WCB. The funds were paid in respect of the CRA's "property
claim" in bankruptcy and not as a result of the mortgage.
[13]
Accepting
that "arguable case" is a very low threshold, do these facts raise an
arguable case?
[14]
A secured
creditor does not cease to be a secured creditor as a result of seeking a
bankruptcy order against its debtor: see subsection 43(2) of the Bankruptcy
and Insolvency Act, R.S.C. 1985, c. B-3 (the Act):
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43.(2) If the
applicant creditor referred to in subsection (1) is a secured creditor, they
shall in their application either state that they are willing to give up
their security for the benefit of the creditors, in the event of a bankruptcy
order being made against the debtor, or give an estimate of the value of the
applicant creditor's security, and in the latter case they may be admitted as
an applicant creditor to the extent of the balance of the debt due to them
after deducting the value so estimated, in the same manner as if they were an
unsecured creditor.
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43.(2) Lorsque le
créancier requérant est un créancier garanti, il doit, dans sa requête, ou
déclarer qu'il consent à abandonner sa garantie au profit des créanciers dans
le cas où une ordonnance de faillite est rendue contre le débiteur, ou
fournir une estimation de la valeur de sa garantie; dans ce dernier cas, il
peut être admis à titre de créancier requérant jusqu'à concurrence du solde
de sa créance, déduction faite de la valeur ainsi estimée, comme s'il était
un créancier non garanti.
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[15]
The
amount paid to the CRA was characterized by the trial judge as "the final distribution of the proceeds of the sale of MKM's land
and buildings by the trustee in bankruptcy." The applicant suggests that
the payment was made in respect of CRA's "property claim" filed under
the Act. Given the characterization of the payment by the trial judge, it is
clear that it was not simply a pro rata distribution of the funds in the
trustee's hands, nor does the amount – the proceeds of sale less the cost of
the proceedings – lend itself to the conclusion that the payment was for the
unsecured portion of the debt owing after realization of the security, as
provided in subsection 43(2) above.
[16]
Subsections
227(4) and (4.1), which were raised before the trial judge, deal with third
parties who, notwithstanding intervening security interests, are deemed to hold
amounts in trust for the Crown. They do not deal with the Crown itself holding
funds for itself and another public creditor. If the CRA had another "property
claim", counsel has not told us what it is.
[17]
Paragraph
22 of the applicant's Written Representations does not raise an arguable case. Other
than a bald denial, the Court has not been given any reason to question the
trial judge's characterization of the payment made to the CRA. If the trial
judge's characterization is correct, then the disposition of the applicant's
appeal to the Tax Court of Canada is unassailable.
[18]
The
absence of an arguable case combined with the absence of a continuing intention
to appeal are fatal to the request for an extension of time to file a Notice of
Appeal. In this application, the applicant takes issue with the Court's
conclusion on the question of continuing intention to appeal: see paragraph 47.
Two points should be made on this issue. The first is that the evidence that
the applicant had a continuing intention to appeal should come from the
applicant, not from his counsel. The second is that counsel's affidavit is
equivocal. It does not say that the tragic circumstances which intervened in
the applicant's life prevented the latter from communicating his instructions
to counsel. It says only that counsel "was unable to obtain instructions
to file the Notice of Appeal until Tuesday, June 24, 2008." The obligation
of timeliness was the applicant's, not counsel's.
[19]
The
application for reconsideration will be dismissed with costs.
"J.D.
Denis Pelletier"
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